Baker Hughes Is Undervalued Among The Big 4

Stocks in the energy sector of the S&P 500 have been some of the biggest losers year to date, which presents an opportunity as valuation of the big names in the oil services companies look cheap. I will summarize and pick the winner from the big 4: Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), Baker Hughes (NYSE:BHI) and Weatherford (NYSE:WFT).

Valuation

Price/Earnings

PEG

Price/Book

Price/Earnings Multiply by Price/Book

Schlumberger

18.4

0.94

2.87

52.8

Halliburton

9.6

0.38

2.17

20.8

Baker Hughes

10.4

0.47

1.1

11.4

Weatherford

44.4

5.13

1.19

52.8

Click to enlarge

Comments: Baker Hughes looks very attractive looking at Price/Earnings times Price/Book. Also it has the lowest Price/Book ratio. On the other hand, Schlumberger looks expensive.

Performance

ROA

ROE

Profit Margin

EPS Quarterly Growth YOY

Revenue Quarterly Growth YOY

Dividend Yield

Schlumberger

9.49%

16%

12.4%

41%

21.85%

1.51%

Halliburton

14.1%

25%

11.87%

23.1%

30%

1.06%

Baker Hughes

7.09%

11.3%

8.32%

-1.2%

18.34%

1.4%

Weatherford

1.3%

2.8%

2.14%

-11.59%

26.91%

0%

Click to enlarge

Comments: Halliburton fares the best with the highest ROA, ROE and revenue growth. Although Baker Hughes had a drop of EPS and revenue, however it still was able to produce comparable profit margin as compared to Schlumberger and Halliburton, plus it was able to maintain a double digit ROE.

On the other hand, Weatherford is performing the worst, the only upside is that it scored a double digit revenue growth, however it looks dangerously priced based on valuation.

Financial Health

Current Ratio

Debt to Equity

Working Capital (Million)

Market Capitalization (Million)

Cash Holding (Million)

Schlumberger

1.97

0.26

10,490

96,829

1,346

Halliburton

2.79

0.35

7,708

31,437

2,655

Baker Hughes

2.63

0.23

6,310

18,780

780

Weatherford

1.83

0.70

3,221

10,522

339

Click to enlarge

Comments: Except for Weatherford which is slightly over leveraged, the remaining three are financially strong.

Fundamental Analysis for Baker Hughes

Based on Income Statement

2010-03

2010-06

2010-09

2010-12

Revenue Growth Rate

4.57%

32.89%

20.87%

8.46%

Net Income Growth Rate

53.57%

-27.91%

174.19%

31.37%

Operating Margin

8.59%

6.88%

9.93%

12.71%

Operating Margin Growth Rate

38.98%

-19.92%

44.43%

27.94%

Earnings Per Share Growth Rate

51.85%

-43.9%

156.52%

30.51%

Share Price Growth Rate (Based on closing price on the day after earning release)

2.24%

-8.93%

10.79%

28.84%

Click to enlarge

2011-03

2011-06

2011-09

2011-12

2012-03

Revenue Growth Rate

2.31%

4.77%

9.22%

4.04%

-0.59%

Net Income Growth Rate

13.73%

-11.29%

108.88%

-55.52%

20.7%

Operating Margin

14.14%

13.01%

15.78%

9.76%

11.71%

Operating Margin Growth Rate

11.31%

-7.99%

21.24%

-38.12%

19.91%

Earnings Per Share Growth Rate

12.99%

-11.49%

109.09%

-55.28%

19.44%

Share Price Growth Rate (Based on closing price on the day after earning release)

24.01%

3.44%

-33.02%

-11.39%

-9.27%

Click to enlarge

The weak revenue growth in 2012-Q1 appears to be seasonal after comparing the two previous Q1. Also, the net income growth rate, operating margin growth rate and earnings per share growth rate are all better than 2011-Q1, which is a promising sign.

The share price appears to be decelerating its slide by a negative single digit rate (-9.27%) with the improvement of earnings per share growth rate. This is a good sign.

According to Reuters, the mean long term growth based on consensus stands at 19.86%, which is another promising sign.

Technical Analysis for Baker Hughes

(Click to enlarge)

Chart courtesy of StockCharts.com

Baker Hughes is still looking bearish as it is struggling to break the 50 Day moving average. However it is facing a strong support within the range of 39-43. The crossover of MACD line crossing the signal line indicates a reversal is bound to happen.